The Economist: The World in 2010

November 14, 2009 5:09 PM

In 2010, Obama will have a miserable year, NATO may lose in Afghanistan, the UK gets a regime change, China needs to chill, India's factories will overtake its farms, Europe risks becoming an irrelevant museum, the stimulus will need an exit strategy, the G20 will see a challenge from the "G2", African football will unite Korea, conflict over natural resources will grow, Sarkozy will be unloved and unrivalled, the kids will come together to solve the world's problems (because their elders are unable), technology will grow ever more ubiquitous, we'll all charge our phones via USB, MBAs will be uncool, the Space Shuttle will be put to rest, and Somalia will be the worst country in the world. And so the Tens begin.

The Economist: The World in 2010.

Previously: 2009, 2008, 2007.

How did we do last time around?

Guest contributions:

President of the European Commission José Manuel Barroso lines up Europe's priorities

President of Russia Dmitry Medvedev argues for dialogue and cooperation
President of the Maldives Mohamed Nasheed wants his island nation to remain above water
President of Indonesia Susilo Bambang Yudhoyono would like for Islam and the West to live in harmony
President of South Africa Jacob Zuma says Africa should rise to the occasion

Director-General of the World Health Organisation Margaret Chan predicts the development of the flu pandemic
Managing director of the International Monetary Fund Dominique Strauss-Kahn explains how to prevent another crisis

CEO of Yahoo! Carol Bartz believes business leaders should tap into the information flood
Chairman of HSBC Stephen Green argues that the financial sector should welcome emerging economies
CEO of Fiat Group and Chrysler Group Sergio Marchionne thinks greener cars require bolder action
CEO/CTO of SpaceX Elon Musk says the private sector should handle space travel

posted by goodnewsfortheinsane (57 comments total)

Amazing that after twenty years, no one agreed on what to call the Aughts.

Now: the Tens? Fuggetabout it. The teens. Period.

Thanks for all the links. Just wanted to get the nomenclature thing straight first.
posted by kozad at 5:14 PM on November 14, 2009 [1 favorite]

MBAs are already uncool.

and from the "How did we do last time around?" link:
The biggest news story of the year was missing entirely: the death of Michael Jackson.

Really? That was the biggest news story of the year? For THE ECONOMIST? We're all doomed.
posted by birdherder at 5:17 PM on November 14, 2009 [6 favorites]

Now: the Tens? Fuggetabout it. The teens. Period.

Hey, let's just hope we get through the tweens first, without all ending up pregnant or in jail.
posted by rokusan at 5:19 PM on November 14, 2009 [14 favorites]

the solution is just around the corner. Palin Beck 2012
posted by mattoxic at 5:23 PM on November 14, 2009 [1 favorite]

This is a quality post. Thanks goodnewsfortheinsane (and your username is a bit too relevant).
posted by Taft at 5:24 PM on November 14, 2009 [1 favorite]

It's pretty clear what 2000-2009 should be called. 70s, 80s, 90s, naughties.
posted by Malor at 5:27 PM on November 14, 2009 [2 favorites]

The debrief of the 2009 predictions is yuck: "We were right! Obama couldn't live up to expectations, Afghanistan is a cesspool, and emerging economies want more influence. But ho ho, we were wrong too, coz none of us predicted MJ would kick the bucket!"
[ANTI-ECONOMIST-IST]
posted by mhjb at 5:28 PM on November 14, 2009

I only trust predictions from computers running game theory models. We use computer models to get the weather, after all.

Even if it turns out to be bunk in practice, I still love the idea of a computer generating talking-head level conjecture, partly because it'd be so easy to game it if you have an agenda. Just change the variables and only report the outcome you want to present, which is bad in science but fine for TV. I'd love to see Glenn Beck feeding in punchcards with intel about Obama into a Cold War-era mainframe, as prints out SOCIALISM! SOCIALISM! SOCIALISM!

As for why it's an obsolete computer: If it was good enough for HEROES like Reagan and Thatcher, it's good enough for Glenn.
posted by mccarty.tim at 5:42 PM on November 14, 2009

Note first that the novelty of Mr Obama’s colour and style did not last all that long even during his first year.

The outrage has managed to eclipse the novelty. 2010 will be a banner year for racism, alas.
posted by Astro Zombie at 5:43 PM on November 14, 2009 [6 favorites]

fwiw, pundits have a terrible track record irt how people react to Obama
posted by edgeways at 5:50 PM on November 14, 2009

Woah. That's ridiculously casual racism. Good (?) find, Astro Zombie.

Conservatives seem to be the most hung up on race, and I don't mean in your typical "Hey, let's forward our friends pictures of the White House with watermelons on the lawn" racism. They seem to think Obama is so incompetent, so socialist, so unlikable, that he must have gotten in because of de facto affirmative action, at least in part. The thing is that people picked Obama because they liked him best, both among the Democrats and against McCain. He's most in line with most American voter's views on policies, and he's also charismatic and good at getting people out to vote.

Everyone was excited about Obama's race because it meant that we had gone far enough that we would vote for the best candidate, irregardless of race. If Obama and McCain's policies were swapped, I would have gone with McCain.
posted by mccarty.tim at 5:52 PM on November 14, 2009 [6 favorites]

Man, that is an impressive tag list.
posted by The Whelk at 5:52 PM on November 14, 2009 [1 favorite]

I read the FPP and then saw [more inside] and thought, "More? How is that possible?"
posted by GuyZero at 5:56 PM on November 14, 2009

Amazing that after twenty years, no one agreed on what to call the Aughts.

"The post 9/11 era".

I absolutely hate the "Aughts" I don't think anyone actually called the decade as a whole that at the time either.
posted by delmoi at 6:09 PM on November 14, 2009

They'll come to be known as the Zeroes ... and deservedly.
posted by philip-random at 6:09 PM on November 14, 2009 [7 favorites]

No offense, but why would you ask Yahoo for the future? Especially if their point is "We should, you know, process and monetize this information on the internet," when that is pretty much Google's entire model. Plus, if that's your policy, why did you kill Geocities? That's like trying to drain the ocean so that you can drive to Europe, but instead accidentally killing all of the whales.

That said, I'm surprised the Fiat/Chrysler CEO is asking for politicians to take "bold action" on green cars, and openly admits hydrogen fuel's biggest problems. Much different from the GM stance of "Keep CAFE standards low or else we'll be less green!" It makes Chrysler seem a little less doomed, and it makes my malaise over owning a PT Cruiser all the more lighter. (EXAGERATIONBURGER, it gets me from A to B)
posted by mccarty.tim at 6:10 PM on November 14, 2009 [1 favorite]

Also, since when were MBAs cool? And I already charge my phone with USB. Apparently it's going to be mandatory that phones sold in China and a lot of other countries charge with a USB cable, though, which is interesting.
posted by delmoi at 6:11 PM on November 14, 2009

Delmoi, they'd better not call it the Post 9/11 era. That's giving the terrorists way too much power. I'm not saying we should forget 9/11, but we also shouldn't let it define us so heavily.
posted by mccarty.tim at 6:12 PM on November 14, 2009 [2 favorites]

"And so the Tens begin."

For a magazine called "The Economist," their math is a bit off.
posted by Kevin Street at 6:17 PM on November 14, 2009 [3 favorites]

Amazing that after twenty years, no one agreed on what to call the Aughts.

My own creation "the Naughty Aughties" never really caught on.
posted by waraw at 6:18 PM on November 14, 2009 [2 favorites]

My prediction for 2011: The Economist will make their annual "The World in..." available on the web as a single, easy-to-download PDF.
posted by ZenMasterThis at 6:38 PM on November 14, 2009 [3 favorites]

I always called them the "Oh-Ohs".
posted by dirigibleman at 6:50 PM on November 14, 2009 [2 favorites]

I've always called them the "Uh-ohs".
posted by Salvor Hardin at 7:00 PM on November 14, 2009 [2 favorites]

I seem to remember Cecil Adams going for 'the Naughty Aughties.' But then he said something about people cooperating.

I've been doing my part.
posted by box at 7:05 PM on November 14, 2009

For a magazine called "The Economist," their math is a bit off.

I would say they are about as mathematically adept as most economists.
posted by jjray at 7:17 PM on November 14, 2009 [5 favorites]

I've heard them called the Noughties. Which is cute, but cute in the way that a boss telling you 'you did an EXCELLENT job, have a cookie' is cute.
posted by twirlypen at 7:21 PM on November 14, 2009

Delmoi, they'd better not call it the Post 9/11 era. That's giving the terrorists way too much power. I'm not saying we should forget 9/11, but we also shouldn't let it define us so heavily.

It's not really about the terrorists, it's just about the hysterical over-reaction. The main reason I called it that, though is that it's really been how the time period has been most referred to as.
posted by delmoi at 8:09 PM on November 14, 2009

Delmoi, they'd better not call it the Post 9/11 era. That's giving the terrorists way too much power. I'm not saying we should forget 9/11, but we also shouldn't let it define us so heavily.

Absolutely right. No way we can call it post 9/11. I know, let's call it the new normal.
posted by Chuckles at 8:26 PM on November 14, 2009

Well, two more years and it'll all be over (according to the History Channel), so there's that to look forward to, at least!
posted by Mael Oui at 8:33 PM on November 14, 2009

cute in the way that that a boss telling you 'you did an EXCELLENT job, have a cookie' is cute.

I've been working at a marina as a maintenance man since May. Occasionally I have to double as a dockhand, fueling up boats, doing pump outs and what not. In August, two boats came in, wanted to fuel up and then wanted help docking in a couple of our slips. I fueled the bigger of the two boats, then walked all the way around and helped them moor up.

What did I get for a tip? Three (homemade) cookies. Cute indeed. I found out later on that these people have always tipped with cookies.

So yeah, they weren't technically my boss, but I did a service for them (and I did it well) and all I got were cookies. I would have been happier with no tip.

If I'm around next time they come, I'll be happy to help them. When they go to tip me though, I'll tell them that I don't eat sweets so they are better off saving them for a dockhand that does.

And I believe that's my prediction for the year 2010.
posted by robtf3 at 8:40 PM on November 14, 2009 [6 favorites]

I'll be bold and say the Tories won't win the next UK election - hung parliament (and they bloody well should be! etc., etc.). They offer a mix of more of the same and a bit worse - like Clarke going off-message (?) and promising to privatise the Post Office. Labour's suffered from poor turn-outs as much as the Tories have increased their vote, and my bet is come a general election enough people will hold their nose and turn out to vote Labour despite everything.
posted by Abiezer at 9:15 PM on November 14, 2009

Somewhere in a filebox in the next room I've got a copy of the Economist's 2008 (the Year To Come) issue. Nowhere in it is there a heralding of the pretty much universal collapse of the planet's great economies (and the not-so-great).

They do a good job of presenting a unique small "c" conservative (socially egalitarian, economically devout) slant on the weekly world news (with commentary). For my Futurism, I'll stick with Philip K. Dick (and Futurama, of course).
posted by philip-random at 9:51 PM on November 14, 2009 [2 favorites]

How did our stars align in The World in 2009?

In some respects, surprisingly well. We imagined what would happen if, after years of fuelling the world economy with their spending, Americans suddenly started saving 5% of what they earn. They did, and the result was as predicted: recession. The rich-world recession proved even deeper than we expected...

Are they serious? That's an amazing amount of nonchalance, self-congratulation, red herring, and false causation to fit in under sixty words.
posted by Reasonably Everything Happens at 10:14 PM on November 14, 2009 [5 favorites]

it's the economist, for crying out loud. pretty good at reporting what has happened, stellar at obituaries and absolutely gobsmackawful with sprinkles when it comes to predicting the future and image captions.
posted by krautland at 10:43 PM on November 14, 2009

So the freshly-minted MBA shows up at his first day on the job. His new boss is busy, so it's the boss' secretary who takes him around the office for introduction.

As they make the rounds, the secretary points out the locations of departments, personnel, and machinery within the office. Finally, they come to the copy machine.

"... and here is the copier," says the secretary.

"Look, lady," the MBA replies, "I'm an MBA. What the hell do you think I need to know about this sort of thing?"

The secretary responds, loudly and slowly: "Okay, hon. This is a COPY MACHINE. When you put a paper in it, it magically makes another one of what you put on the glass here. Here's how you turn it on.
posted by Graygorey at 11:14 PM on November 14, 2009 [6 favorites]

From the Economist: "Battle of the G-Spots"

stay classy economist.
posted by Glibpaxman at 11:22 PM on November 14, 2009

Sometimes I wonder what the real story is behind Somalia.
posted by millardsarpy at 11:38 PM on November 14, 2009

I must know the wrong kind of MBAs.

All the ones I know spend their time toiling away on enormous spreadsheets. They do not lounge on golden thrones eating candied violets of oppression and drinking the sweat of the honest man whilst defrauding the widow and the orphan.
posted by winna at 6:30 AM on November 15, 2009 [2 favorites]

Good to see that the old resource conflict theorem is still floating about. I wonder if they've been reading old Kaplan articles.
posted by knapah at 6:33 AM on November 15, 2009

As someone who has been intensively studying functions for months now, I lol'd at the description of our recovery being a "square-root reversal":

The American economy in 2010 will be torn between two opposing forces. The first is that deep recessions usually lead to strong recoveries. The other is that financial crises usually produce weak recoveries The interplay of these two forces will produce a cycle that resembles not a V, U or W, but a reverse-square-root symbol: an expansion that begins surprisingly briskly, then gives way to a long period of weak growth.
posted by tybeet at 7:11 AM on November 15, 2009

but a reverse-square-root symbol

Poor analogy. A reverse-square-root symbol is a ².
posted by explosion at 7:48 AM on November 15, 2009 [4 favorites]

We never came up with a name, because by 2000 the politically correct enlightenment taught us to look beyond labels and groups, and helped us see each year as an individual entity, worthy of our love and respect.
posted by iamkimiam at 8:45 AM on November 15, 2009 [1 favorite]

The last decade was the "thousands": 2-thousand-1, 2-thousand-2 and so on, through 2-thousand-9. And I always felt there was something pretentious about saying the word "thousand" so often in everyday speech. Good riddance.
posted by klarck at 8:59 AM on November 15, 2009

the editor of the economist was on charlie rose the other week and that unique type of private school british conservatism just oozed through the camera.

that obama 'colour' and novelty thing is an absolute joke...good catch
posted by lslelel at 9:30 AM on November 15, 2009

All the [MBAs] I know spend their time toiling away on enormous spreadsheets. They do not lounge on golden thrones eating candied violets of oppression and drinking the sweat of the honest man whilst defrauding the widow and the orphan.

A few of the MBAs I know have, on three separate occasions in the past year, called a number of employees (ranging from twenty to a few hundred) into a room and informed them that when they left that room they would be taking boxes back to their desks while security guards watched to make sure they didn't steal the staplers. None of them were orphans as far as I know, but a few were widows/widowers, and most had families to feed.

In two of these instances, the "job-actioned" employees were promptly replaced by new hires who command a lower wage and earn less paid vacation. For this, the MBAs received large bonuses in recognition of their "decisive leadership." It's not too far off to say that the sweat of the honest (wo)man helped pay for a couple of new boats at the local marina this year.

In the third instance, a department that handled customer records was outsourced to an outfit in Cincinnati which, in turn, outsources the actual data handling to a data-entry center in Asia. This allows our company to pay offshore rates while telling our customers that we "do not use offshore companies" to handle their sensitive financial data. I don't know who within our organization decided on this scheme, but by process of elimination it's almost certain to have been an MBA.

The MBA symbolizes the rational-actor mentality that buys legislation suiting its purposes, often in direct opposition to the needs of the populace or the environment, and then declares any action not prohibited by law to be moral and just. It may or may not still be cool, but until very recently it was the thing to have for the ambitious young businessperson, and I for one celebrate its decline.

The cynic in me says that nothing will change, but my more optimistic side holds out hope that the "fundamental reappraisal" to which the Economist refers will result in a business culture where rapacious, amoral behavior is no longer expected and rewarded to such an extent. Regardless, I won't be around to see it: though no longer among the young and ambitious, I'm leaving business and going back to school for a career change into public service.
posted by [user was fined for this post] at 9:36 AM on November 15, 2009 [7 favorites]

Whoa. Maybe we can just skip 2010 and go straight to 2011?
posted by Skygazer at 11:53 AM on November 15, 2009

Wow, why do I get the feeling you dont understand business?
All MBAs are bad because of a two or three pieces of anecdotal evidence that you may disagree with?

It sounds like your problem is with corporations, since any smart corporation in their right mind, in this economy would make the same decision. Pay someone $80,000 when we could have someone do the same job for $35,000? How could you not do that? Especially if the likely alternative to cutting costs is to go out of business, lose YOUR job and the job of everyone else in the company?

Please, Mr. Anti-MBA, Tell me what you would have done in the same situation.
posted by subaruwrx at 1:25 PM on November 15, 2009

"Naughty" is reserved for the 1890's.

So also "gay".

Pay someone $80,000 when we could have someone do the same job for $35,000? How could you not do that?

Yet senior execs and CEOs currently make seven, eight, even nine figure paydays when their forebears in similar positions earned a fraction of that fifty years ago.

Sauce for geese and ganders and all that.
posted by IndigoJones at 2:43 PM on November 15, 2009 [2 favorites]

Well, I have an MBA.

Perhaps I'm not a typical MBA, considering that I went into the degree seeking knowledge of the business world over the potential for a higher paycheck (although, yeah, the idea of a higher paycheck was nice too). I'm definitely not a typical MBA in that I didn't return to industry but continued in academia.

So I think I can reasonably say that I may not understand business entirely, but certainly enough to respond to this.

Wow, why do I get the feeling you dont understand business?

A big, HUGE part of getting an MBA is the way it trains you in attitudes and worldviews that make it possible to have a career in business. That (and I can't stress this enough) is the main point of the MBA program. The faculty is there to make you into 'professionals.' They sure as hell aren't teaching spelling, grammar, or how to construct a persuasive argument (if my colleagues' work was anything to go by).

As an MBA student you learn about finance, economics, marketing and so forth. But all of those lessons take place within a specific and carefully constructed social environment. The attitudes, worldviews, concepts and ways of being that one learns in an MBA program are the tools that permit MBAs to make decisions based solely on financial considerations and still sleep at night: It's just business. Nothing personal. It's the way the world works. If I don't arbitrage this opportunity someone else will. It's a dog-eat-dog world. I'm just doing what I have to do.

Part of that bundle of worldviews and attitudes is the idea that working on a spreadsheet for Company X means that you have nothing to do with the layoffs Company X makes. Hey man, that's a whole different department.

The spreadsheet jockeys may have no direct link to the people who get laid off. But if the spreadsheet jockeys are MBAs, chances are good that they're part of the same value system that so thoughtlessly lays off so many. The fact that someone could see no link between MBAs and mercenary business practices shows how utterly normal these attitudes are within business culture.

It's not that MBAs are the bringers of this particular type of evil. They're just its purest distillation, carefully groomed to be unaware of the downsides of their system.
posted by Monsters at 3:11 PM on November 15, 2009 [8 favorites]

millardsarpy: Sometimes I wonder what the real story is behind Somalia.

The illegal fishing seems plausible enough, but the illegal dumping is questionable. Whenever I see this claim made, it's always backed up by idea that illegal dumpers travel to and use the country's seas as a dumping ground, because the Somalians can't protect them. This only makes sense if you incorrectly make the assumption (which is true with regard to land) that all of it claimed by someone or other, so the Somalian territorial waters are less defended than the rest. Of course, that ignores international waters and in particular the open ocean, which isn't owned by anyone - and the international sort of laws that prohibit dumping in international waters undoubtably protect Somalian waters as much as any. And from a simple access standpoint, there's no good reason to dump there - you'd probably have to cross international waters to get there from Europe, so there's no reason you wouldn't just dump into it instead, and Somalian waters get plenty of traffic (which is why piracy works there), so it isn't particularly secluded.

I guess I'd just like to see some solid evidence or at least a good reason why the dumping would occur that takes into account the whole international waters thing.
posted by Mitrovarr at 3:25 PM on November 15, 2009

The spreadsheet jockeys may have no direct link to the people who get laid off. But if the spreadsheet jockeys are MBAs, chances are good that they're part of the same value system that so thoughtlessly lays off so many.

You are ignoring completely the fact that in your value equation, it isn't your money. It's not the manager's money. It's not the corporation's money. It's the owners' money. But I'll get to that in a moment.

Underlying your argument is the assumption that it is immoral, or somehow otherwise "wrong" to lay off a person getting paid x to do a job compared to keeping him on. This assumes a particular viewpoint, namely that the person already in the job is somehow morally more important than the person who would take that job making 0.75X.

In other words, your value judgment is framed wholly from the context of the status quo: we should give more consideration to the guy already at the job simply because he is already there.

This is perverse. The system should be rewarding the second guy who is willing to do the same job for less. The system should also be informing the first guy, the current employee, that the additional experience he has over and above the second guy isn't particularly important for this kind of job. It should be encouraging him to move out of that jab and into one where the experience does matter (e.g. management).

For example, a lawyer with more experience is probably worth more than a lawyer with less, all else being equal, because their experience give them insight into problems an opportunities that can't be learned from a book or classroom.

This isn't true for most jobs, however. For many jobs, being at it for 10 years simply means you have 1 year of experience repeated 10 times. The system should be informing these people that it is time to move on to something where their experience is important.

But this is all subjective value assessment. The fact is that a business is operated for the benefit of the owners, not for the benefit of management or employees. The only value system that matters is the owners', not yours. If, for example, you can replace a guy making $80k with a guy making $50k and incur losses or transaction costs of less than $30k, you are obligated to do so, because that is your job. Neither the $80k or the $50k is your money. It is someone else's money. That someone else put you in that job specifically and explicitly for the purpose of making him more money. If you are uncomfortable with this, you can quit.

What you don't understand about business is that the business belongs to someone, or many someone's. They are willing to put their money at risk, but they are entrusting it to you. You have the obligation to treat this property the same as you would a tool that someone lends to you.

The reason they have business schools is because, as surprising as it may seem, all people who have ever and will ever own successful businesses want they managers to operate that business is the same way - to maximize profit. If the owners want to be generous or charitable, and a great many of them do, they will do so in whatever way they see fit, independent of the people who run the enterprise that makes them that money in the first place.
posted by Pastabagel at 4:49 PM on November 15, 2009 [1 favorite]

Underlying your argument is the assumption that it is immoral, or somehow otherwise "wrong" to lay off a person getting paid x to do a job compared to keeping him on.

I didn't read that into Monsters' comment.

The only value system that matters is the owners', not yours.

Exactly! That's exactly what I read into Monsters' comment. Why did you errect that massive straw man?!?!

Personally, I think eradication of individualized values is itself immoral.
posted by Chuckles at 5:33 PM on November 15, 2009

Given that the most likely outcome of this "debate" is "all economist are evil" and "mba are the sons of evil" , let me just point out two example of economists who just don't fit this picture.

One is Joseph Stiglitz , who keeps a list with links to all the press he received. Take this bite from Newsweek (emphasis mine):

Stiglitz is perhaps best known for his unrelenting assault on an idea that has dominated the global landscape since Ronald Reagan: that markets work well on their own and governments should stay out of the way. Since the days of Adam Smith, classical economic theory has held that free markets are always efficient, with rare exceptions. Stiglitz is the leader of a school of economics that, for the past 30 years, has developed complex mathematical models to disprove that idea. The subprime-mortgage disaster was almost tailor-made evidence that financial markets often fail without rigorous government supervision, Stiglitz and his allies say. The work that won Stiglitz the Nobel in 2001 showed how "imperfect" information that is unequally shared by participants in a transaction can make markets go haywire, giving unfair advantage to one party. The subprime scandal was all about people who knew a lot—like mortgage lenders and Wall Street derivatives traders—exploiting people who had less information, like global investors who bought up subprime- mortgage-backed securities. As Stiglitz puts it: "Globalization opened up opportunities to find new people to exploit their ignorance. And we found them."

Yup, imperfect asymmetry is profiteable for some. Very much so.

But hey, what about international trade, isn't it good for everybody, for it allows a country to specialize and produce better and less expesive goods for everybody to trade (see Comparative Advantage)? Sounds good, but here's another economist, a support of international trade if there ever was one, enter Paul Krugman.

Not your average "socialist", but he states in this article, something that sounds likw heresy for those who mistake economy for a religion, or present it as such for personal interests (Adam Smith is spinning in his grave for all the misrepresentation it was done for its "invisible hand" statement and systematic underexposure given to his Theory of the Moral Sentiments)

Krugman said (emphasis mine):

There are really two key points here: the rise of China, and the growing fragmentation of production.

First, thanks to the rise of China, OECD imports of manufactured goods from developing countries have continued to rise rapidly since the early 1990s. Cline’s estimate of income distribution effects was based on data from 1993, when US imports of manufactures from developing countries were approximately 2% of GDP; now that number is close to 5%, and rising rapidly.

At the same time, the rise of China has prevented, for the time being, a development that I and others expected to mitigate the effects of trade on income distribution: up-skilling by the developing country exporters. “As newly industrializing countries grow,” I wrote in 1995, “their comparative advantage may shift away from products of very low skill intensity.” And that’s exactly what happened – for the countries that were the major exporters of manufactured goods to the OECD then. As John Romalis has shown, the exports of the original group of Asian newly-industrialising economies have shifted dramatically away from labour-intensive toward skill-intensive products.

But along has come China, which is far more labour-abundant now than the NIEs were then. A simple indicator is relative wage rates: in 1990, according to the US Bureau of Labor Statistics, the original four Asian NIEs had hourly compensation costs that were 25% of the US level. Now the BLS estimates that China’s labour costs are only 3% of US levels.

In 1995 I also believed that the effects of trade on inequality would eventually hit a limit, because at a certain point advanced economies would run out of labour-intensive industries to lose – more formally, that we’d reach a point of complete specialisation, beyond which further growth in trade would have no further effects on wages. What has happened instead is that the limit keeps being pushed out, as trade creates “new” labour-intensive industries through the fragmentation of production.

For example, the manufacture of microprocessors for personal computers is clearly a highly sensitive, skill-intensive process. Intel’s microprocessor production, however, now takes place in two stages: the “fabs,” which print the circuits on disks of silicon, are all located in high-wage advanced countries, but the assembly and testing, in which those disks are cut into individual chips and tested to be sure that they work, is conducted in China, Malaysia, and the Philippines.

Outsourcing of services, in both directions, adds to the possibilities of unequalising trade. The skill-intensive pieces of production processes that mainly take place in the third world are often now located in the OECD – for example, Lenovo, the Chinese computer company, has its executive headquarters in North Carolina.

What all this comes down to is that it’s no longer safe to assert, as we could a dozen years ago, that the effects of trade on income distribution in wealthy countries are fairly minor. There’s now a good case that they are quite big, and getting bigger.

Yup, the comparative advantage model, in a version that is still taught in schools as a basic example, consideres the goods that are produced in each country and the relative efficiency of each country at producing the good. Clearly, each country can reap the benefit of its own specialization from exporting goods and importing goods coming from other specialized countries, so that everyone is better off thanks to international trade.
Unsurprisingly, China is becoming a lot better at satisfying its internal demand without having to resort to import (no wonder, if their currency is pegged to USD, import also becomes more expensive) which can't but maintaing huge trade deficits.
Yet by letting Chinese currency float "freely", the very low prices at Walmart wouldn't be that low anymore..making cash starved yanks pretty much unhappy and asking for higher wages, later followed by europeans. Eventually, even if unpegging doesn't happen but the difference is reduce, importing will become less attractive and production will have to restart in Us and Europe as well.
But, if China labour cost is as low 3% of U.S., even with significant change to currency rates, there still would be little incentive to produce in the U.S in any kind of scheme that involved hundreds of relatively low skilled workers, which makes restarting the production on this side on the globe less likely.
posted by elpapacito at 5:42 PM on November 15, 2009 [1 favorite]

subaruwrx: Wow, lotta hostility there. Sorry if I touched a nerve.

I don't know an objective definition of who "understands business" and who doesn't, so I won't make that claim, but I understand well enough why a business would want to pay employees as little as possible. The people who run the company I work for would be happy for all 8,000 of their employees to live in penury if it maximized profits for the shareholders.

By the same token, the WTK Group would be more than happy to cut down every tree in the Amazon, Pfizer would like nothing better than to bribe your doctor to prescribe their drugs off-label instead of drugs proven to treat your condition, and Blackwater Xe will gladly authorize its employees to shoot any Iraqi civilian who looks at them funny. In all of these cases, the people making profit-maximizing decisions have developed a mentality that is carefully compartmentalized to shield them from having to face the harm that their decisions cause.

As Monsters eloquently points out, MBA programs typically cultivate this sort of mentality. This doesn't mean that "all MBAs are bad," but it does mean that people who adopt the mindset taught by those programs are likely to spend large portions of their lives making or carrying out decisions based on increasing net profitability, without regard to the impact on people or the environment except as constrained by such laws as they are unable to get around by lobbying legislators or (in some countries) bribing officials.

To answer your question directly, subaruwrx, if I were in the same position I would be obligated to meet the expectations of my shareholders by firing the loyal employees and hiring the cheaper ones. And then I would feel really shitty for having made a bunch of people's lives worse off. This is why I am taking steps to remove myself from a culture where such decisions are expected and rewarded.
posted by [user was fined for this post] at 10:58 PM on November 15, 2009

If, for example, you can replace a guy making $80k with a guy making $50k and incur losses or transaction costs of less than $30k, you are obligated to do so, because that is your job. Neither the $80k or the $50k is your money. It is someone else's money. That someone else put you in that job specifically and explicitly for the purpose of making him more money. If you are uncomfortable with this, you can quit.

That still doesn't cover the senior management guys who, as I mentioned, bring home outsized paydays relative to those of their forebears. Are they aligning these paydays with the owners (i.e. shareholders) interests? They are not. They are expecting to be paid like entrepreneurs for managerial work. Why? Because they can. Lot of backscratching in the compensation committee, ey what? This is why over the past few decades their compensation has skyrocketed relative to the lowest paid folk.

I know of a fortune fifty company that recently laid off a few hundred workers as part of Big Plan. Basically the managerials wanted the relevant departments to hit an arbitrary number (no doubt picked by an MBA) so they would have something to point to when bonus time came around. The jobs went overseas and the long time employees, many near retirement but not quite there yet, were let go. In the middle of the worst economic downturn since the depression. Oh, and the company is in the black and paying a dividend north of 4%, so it's not like this was a do or die necessity. For those left behind, morale goes down the toilet as they can only believe that it's a matter of time.

Time was when defenders of capitalism (among whom I tend to place myself) pointed to its capacity to create good solid jobs. Now - not so much. As charity begins at home, I believe that there is some moral responsibility to my neighbor having a job rather than some guy in Hyderabad having that job. (Long term stupid anyway (not that management thinks long term these days). What will they do when the rupee and renminbi rise seriously against the dollar? Or when war breaks out in Asia?)

Are people owed a living by any company? Of course not. Things change, life's hard. But the pain seems a whole lot less hard for the people in upper management than for the pawns on the chess board. We all must strive to do our best, but we have responsibility for those who are merely adequate.
posted by IndigoJones at 6:47 AM on November 16, 2009

I hope the rest of the articles are better fact-checked than the one on the Space Shuttle:

Defective o-rings doomed the Challenger flight in 1986, and a chunk of insulating foam gashed the wing of Columbia on re-entry, in 2002. The dreadful fan-like tumbling of the debris from the sky was all the worse because Columbia carried a woman teacher and a black astronaut among its crew, America in miniature.

Well...Columbia was in 2003, first of all, and it was Challenger that carried the teacher and the black guy (although as Ronald McNair was the second African-American to fly in space, I'm not sure why his race is relevant- Columbia had an African-Amercian AND and an Indian-American AND an Israeli, but they didn't mention that). Columbia's wing was gashed during ascent, not during re-entry, although that's when the problem happened.

That's a hell of a track record right there for two sentences, though the rest of the article is similarly messed up. Thanks, Economist.
posted by zap rowsdower at 7:36 AM on November 16, 2009 [2 favorites]

except as constrained by such laws

Looking back on my economics studies, this more than anything was the biggest gaping hole. It can be summarized as the disconnecting of political from economy (not only did Adam Smith appreciate this distinction, but he probably would have been horrified at the success of their isolation).

Generally those who defend 'market efficiency' economics are oblivious or disengenuous of the extent to which these markets externalize things that most people expect to be valued. Stuff like non-toxic air and water, a safe work place, equal protection of property and rights, and maintenance of the public realm.

Of course when I talk of 'people' I talk of the majority of the population who aren't in the owning class. In democratic regimes, they must be taken to task on their (in)abilty to affect legislators who are the progenitors of laws that fail to adequately internalize these sought values.
posted by Reasonably Everything Happens at 7:49 AM on November 16, 2009